Special Report: Commercial Insights

“Our industry is sort of envisioned as ‘old tech.’ Climate
control has become a highly skilled trade, but it remains hard for the industry
to attract young people.”

John Conover, president of Trane in the Americas, set the
tone for this year’s Special Report: Commercial Insights, as he captured what
is often referred to as the No. 1 challenge the HVACR industry faces.

This and a myriad of other important issues were topics for
discussion as leaders of three commercial manufacturing companies met with John
Conrad, publisher, and Mike Murphy, editor-in-chief of The
NEWS. Following are excerpts from conversations with Conover; Kelly
Romano, president, Building Systems and Services (BSS), Carrier Corp.; and Eric
Roberts, executive vice president, McQuay International.

TRAINING

NEWS: Are there programs at your company in place to assist
in the training of technicians?

Roberts: We have an open training policy. We will train any
contractor on any of our products. The more people trained on our products the
better. We have a training facility in our Virginia facility that focuses
primarily on chillers, but we have other classes nationally on a case-by-case
basis ranging from controls through our DX product line.

John Conover, Trane in the Americas

Conover: What should we be doing for the contractors other
than take them on fishing trips? What can we do together as part of the HVAC
construction industry? That’s really the bigger discussion to a certain extent.

It’s for this reason that Trane has invested heavily in
training programs and career paths for contractors, engineers, and our own
employees and leaders at all levels.

Some of Trane’s training takes place at headquarters and is
fed through satellite to the local offices. “Breakfast with Trane” is an
in-person training program that features our application engineering group and
other Trane and industry experts talking about trends, technologies, and issues
impacting the HVAC industry. For example: Our N.Y./N.J. team just held a series
in New York City, Long Island, and New Jersey where energy experts discussed
building energy analysis technology and what we can all do to help owners save
money through energy efficiency in time for tax season. These types of sessions
are held locally in many of Trane’s 80-plus Americas offices.

Another training program that Trane provides involves
satellite broadcasts to talk about technical challenges of the day. There are
about four to six of these sessions per year.

Most of the attendees are engineers and contractors.
However, sometimes-sophisticated facility groups may come. For example, the
University of Michigan facility management staff attends one of our classes
every year. Trane has 35 Ph.D.s on the application engineering staff focused on
industry solutions.

Trane also teaches an air conditioning clinic which we have
been updating for 20 years. It is a 12-week period of training for consulting
engineers and design-build contractors; this has been a basic training class.

Trane trains the people that train the industry. This
includes an extensive talent development program to attract, retain, and
develop leaders. Nearly 50 years ago, Trane began an intense six-month training
program for its entire sales force. College graduate engineers attend classes
eight hours a day for five and a half days each week.

Thirty to 40 people graduate from Trane University, as it is
called, in LaCrosse, Wis., every six months. Then they go through another six
month period of training on the job. We think of it as an advanced
thermodynamics degree. Sixty kids a year for 50 years tells you that we have a
history and tradition of training in this industry.

Kelly Romano, Carrier, Building Systems and Services

BUSINESS TRENDS

NEWS: What are some of the key issues facing commercial HVAC
contractors?

Romano: I would group the challenges into a couple of key
areas: people and market forces. Finding, training, and keeping an engaged
commercial technician workforce is critical to the success of commercial HVAC
contractors. In addition, the changing environmental and industry regulations,
accelerated project schedules, and the recent strong commodity headwind are all
important issues facing commercial contractors.

Roberts: As technology changes we are seeing a fundamental
change in the way products are designed and how the technologies are applied in
these newer products. This requires contractors to be in a continual mode of
learning about the new capabilities of equipment and systems. Understanding how
the equipment and building function together as a system will become even more
important; building system analysis is going to be a mandatory function for
contractors to perform for owners.

Eric Roberts, McQuay International

ECONOMIC GROWTH

NEWS: What are your projections for the commercial markets?

Roberts: Economists project around 2-3 percent growth;
however, for the markets McQuay serves, we are currently expecting growth in
the range of 5 percent. We are cautiously optimistic. There are a couple of
current indicators that have people concerned, but overall we are looking
forward to a good 2007 and 2008.

Conover: In the future, we see a long-term trend that is
countercyclical between residential and commercial. We think that commercial is
in for a pretty good run for the next two or three years.

Productivity is a big challenge for this industry. The
construction industry is the only one in the United States in the past 20 years
that has had declining productivity. A University of Michigan study cited a
loss of 2 percent, while other major industries gained in productivity. One of
the things that can lead to increased productivity is an adherence to safety
practices.

TECHNOLOGY ADVANCES

NEWS: What do you see as the next major advance in heating
and cooling technology? When will it have an impact on the market?

Romano: We see continued evolution in the areas of heat
exchanger technology. More system integration within the HVAC industry, but
also more building-wide integration that combines lighting, HVAC,
fire/security, and distributed power generation.

Roberts: I’ll try not to focus on a specific technology but
on what the technology will do. We believe there is a shift from full-load to
part-load efficiencies, which is the true operating mode of a building.

We’re going to see a focus throughout the industry on
developing many technologies, allowing for better part-load performance. That
can be achieved through variable-speed compression, variable-speed fans, and
even new systems of controlling water flow for buildings. Our main focus is
going to be on the part-load efficiency as opposed to the traditional full
load.

This is coming about because of the emphasis of several
things such as the government wanting to measure and regulate the efficiency
ratings systems, ASHRAE looking at true building profiles, and owners who are
doing life cycle costing analysis of their facilities. I think it will all
focus on the true operating mode of a building, which will drive everyone
toward a more dynamic load profile and not just a full load for the building.

I view the part load verses full load as a change in the
commercial industry that is similar in importance to the recent 10 to 13 SEER
change in the residential market.

Conover: We think that in the future, we will see hardwiring
go away. One of the practical applications for wiring was in a school job that
was on a fast track. The job was completed with thermostats already in place.
The inspectors came through and noticed that the thermostats were too high for
wheel chair employees. Within a few hours all the thermostats were easily lowered
because they were wireless.

LABOR SHORTAGE

NEWS: We keep hearing about the shortage of qualified
technicians. How is your company addressing this problem?

Roberts: We see it as much as anyone else; the average age
of our qualified technicians continues to increase. At McQuay, we have begun
focusing more on recruiting directly from technical schools to develop our own
technicians.

Conover: If we think expansively, we believe that we’re
quickly heading into an era where the opportunity far exceeds the capacity of
the industry. The number of young people that are in the education system
heading for our industry is only one for every five retirees. The challenge of
attracting talent is going to be the No. 1 issue facing everyone at all levels
of this business.

As an industry, we have to figure out processes to increase
the volume we do per head - people may say about that comment, ‘Oh, you’re just
trying to take jobs.’ No, that’s not it. We have a long way to go toward
hiring, retaining, and training enough people so that this industry continues
to grow. We are spending a lot of time on that; it’s one of the bigger focuses
of our developmental plans in the background.

Instead of focusing on making individual product components,
we’re focusing more effort on building systems that go together easier, that
come up through the commissioning process faster, and the newest front is on
wireless technologies.

Romano: Carrier offers a comprehensive suite of training for
HVAC technicians. We’ve also participated in and been a strong supporter of
NATE. In addition, we develop material for, and support, HVAC vocational
schools around the country.

I think there are a number of areas where contractors can
work to stabilize and develop the technician workforce: frequent communication
with technicians in the field is paramount.

Training: Provide continuous and up-to-date training on the
latest technology. This is critical and typically well appreciated by
technicians.

Safety: Train for and provide a safe working environment at
all times for your technicians. They deserve to be safe, and as an employer you
owe it to them to do so.

Uniforms, trucks, and tools: Professional people deserve a
professional look. Uniforms, up-to-date and clean service vans, and the tools
technicians need to do their job effectively are all important elements to help
keep qualified technicians with your company and in the HVAC industry.

As commercial contractors and manufacturers seek ways to
satisfy building owners’ increasing requests for high-efficiency products,
geothermal heat pump systems are becoming more common. Demand for other
products such as high-efficiency chillers are also being requested more often.

CONTRACTOR FORTUNES

NEWS: What does the future hold for design-build
contractors?

Roberts: As the demand grows for energy efficiency and
sustainable building design, there is clearly an opportunity for design-build
contractors. Systems are potentially going to become much more complex. The
integration of various systems and controls will cause the commercial delivery
process to become even more critical. That presents an opportunity for the
design-build contractor who often brings advantages to projects.

Conover: Trane has 53 design-build contractors in our
Strategic Partners program. They have told us that what they really want is
four things: help minimize risk, help them be more profitable, increase
productivity, and provide excellent training that makes them smart on the jobsite.

Contracting is all about managing risk. It is more
beneficial for contractors if we can help minimize risk than if we could bring
them new business. Helping them to be more profitable can include an element of
bringing them more business.

Romano: I believe the future is bright for commercial
contracting and design-build contractors. The industry is growing - we are
predicting North America will be up by 5-6 percent this year, and are seeing a
number of projects coming off the drawing boards. Many owners like design-build
- they want to deal with one firm to handle their needs from design through
construction.

Quality building commissioning programs is another way that
design-build contractors can guarantee their future - don’t let others fill
that gap. Finally, the long-term future looks bright for contractors who stay
abreast of rapidly changing technologies like LEED, sustainability,
high-performance buildings.

NEWS: Contractors are concerned about competition from
manufacturers. How should they view your company?

Roberts: Obviously there is a natural and ongoing tension
between equipment manufacturers and contractors for service work on equipment.
On a case-by-case basis, we try to support some end user McQuay customers while
respecting the relationship we have with mechanical contractors who also
service our equipment.

Romano: Contractors are very important customers for
Carrier. We work very hard to provide them with marketing, training, and sales
support material so that they can be successful.

The HVAC market is still quite fragmented with lots of
opportunities to grow. The commercial HVAC equipment market in North America is
almost $5 billion and provides many opportunities for contractors.

Conover: Trane has a long legacy of working closely with
contractors, and they are a very important part of the construction process.

CORPORATE FORTUNES

NEWS: How will the change in McQuay ownership affect the
organization?

Roberts: The combined company [Daikin and McQuay] has
revenue in excess of $9 billion, which is significantly larger than our prior
position.

The relationship enables us to potentially grow the applied
product brands tremendously throughout the world. The company has long been a
major player in markets outside of North America and has a stated goal to
become the largest global HVAC company. With that comes an objective to become
a major player in North America.

We expect the future to hold an expansion of the McQuay line
as well as a broadening down into light commercial unitary products.

NEWS: Several changes took place in the Carrier sales and
marketing organization last year. What took place and why?

Romano: Carrier realigned its organization in early 2006,
shifting from a historical geographic focus to market-focused businesses. The
realignment allowed Carrier to become a more customer-focused organization
through a clear alignment of our assets and resources to specific market
segments. There are three main customer segments: Home Comfort, Building
Systems and Services, and Food Safety.

Carrier Building Systems and Services (BSS) is responsible
for Carrier sales and service in commercial and industrial buildings, this
includes the equipment sales controls integration, total solutions, and
services. Our global strength is unmatched in the industry.

NEWS: What will these changes mean to the commercial HVAC
contractor that has traditionally purchased products from Carrier and Carrier
distributors?

Romano: Our commercial customers did not see any changes.
Local representation in this reorganization remained the same. Contractors
continue to purchase and receive support from the same distribution companies
as they have in the past.

REFRIGERANT CHANGES

NEWS: How are you preparing for refrigerant changes?

Roberts: We first moved to R-410A and R-134a back in the
early 1990s. Currently, we have HFC refrigerants in almost all of our products
and will be switching the remainder over well in advance of 2010. Our parent,
Daikin, and a sister company already have working natural refrigerant systems
with ammonia and CO2, and plan to continue to develop those types of
technologies.

Romano: The next big change is 2010 in the U.S. when HCFCs
(e.g., R-22) will be prohibited in new equipment. For Building Systems and
Services (BSS), this is not a big drama because we were early movers away from
HCFCs, in most cases many years ahead of the Montreal Protocol deadline. So it
really only impacts our rooftop products. We’ll be ready for this important
transition.

Beyond 2010, we continually research and evaluate all
refrigerant options to make sure we’re using the best refrigerant by
application that minimizes any impact on the environment, is safe to use, is
energy efficient, complies with all local codes and regulations, and is
affordable to our end users. Essentially, it is a Rubik’s Cube puzzle for each
application that achieves all these requirements.

INNOVATIONS

NEWS: What product or innovation has your company developed
recently to meet the changes in the market?

Roberts: McQuay was the first to introduce a commercial
water-source heat pump with R-410A. We have also been focused on improving
indoor environmental comfort and quality with quieter sound profiles; many of
our new chiller products have the leading sound profiles in the industry.

The third important change at McQuay is actually a process
rather than a product. We are providing highly configurable products from a
base model manufacturing process so that we can offer custom solutions with
highly competitive lead times.

1. Evergreen 23XRV variable-speed screw
chiller, from 300 to 500 tons, the most efficient chiller in the industry with
non-ozone depleting R-134a refrigerant.

2. AquaForce air-cooled screw
chiller, from 80 to 460 tons, with industry-leading full- and part-load
efficiencies, also using
R-134A refrigerant. The Aqua
Force also is the first commercial HVAC product to utilize microchannel heat
exchanger technology, which significantly reduces unit weight, refrigerant
charge and size, while providing increased efficiency and durability.

With the acquisition of Automated Logic Controls (ALC),
Carrier has the leading technology to fully integrate HVAC and building
automation systems to maximize energy consumption.

Conover: First, I think one of our major efforts has to do
with the general education of the building owner. We have developed over the
last four years a vertical marketing team that is trying to understand the
issues for contractors, engineers, and building owners of education, health
care, life science (pharmaceutical), and high tech (data centers, etc.).

We want to work with those sectors to educate them about how
our industry can make a difference. In the health care sector, a new technology
can have a major impact on IAQ, humidity, airborne contaminants, etc., in operating
suites in hospitals.

These mission critical environments have been handled by our
industry but always at a very high expense. Trane has come up with a new
product and new marketing campaign for health care facilities to let them know
how they can have a tremendous impact upon their operating costs and their
productivity in the workspace, not only with high-
efficiency equipment, but with preventative maintenance.

Publication
date: 06/18/2007

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Mike Murphy has more than 25 years experience in HVACR manufacturing, product development, marketing, sales, and publishing. Murphy holds a bachelor's degree in Business Administration & Marketing. He can be contacted at 440-552-2607 or mikemurphy@achrnews.com.